Meituan's Struggles and Retreat in Community Group Buying | Generated by AI
Meituan’s scaling back of its community group buying business, Meituan Select (now rebranded as Meituan Youxuan), and Duoduo Maicai’s (from Pinduoduo) leadership in the sector can be attributed to several factors:
Meituan’s Challenges and Retreat:
- Heavy Losses and Profitability Issues: Meituan’s community group buying initiatives, particularly Meituan Select, incurred massive operating losses. In 2021, the operating loss from new initiatives, including community group buying, expanded significantly, offsetting profits from its core food delivery and in-store businesses. Despite reorganizations and attempts to achieve profitability (like in Guangdong region by late 2023), the segment continued to be a financial drain.
- Intense Competition and Price Wars: The community group buying market in China became fiercely competitive, with major tech giants like Alibaba (Taocaicai), JD.com, Didi (Chengxin Youxuan, which also scaled back significantly), and Pinduoduo all entering and engaging in aggressive price wars and heavy subsidies to gain market share. This “irrational and unhealthy subsidy war,” as Meituan’s founder Wang Xing described it, made profitability extremely difficult.
- Regulatory Scrutiny: Chinese authorities tightened regulations on community group buying platforms, fining companies for predatory pricing and other anti-competitive practices. This further limited the ability of platforms to rely on heavy subsidies as a primary growth strategy.
- High Operating Costs: The business model, especially with its focus on fresh produce, involved significant costs in building supply chain infrastructure, warehouses, and managing logistics, including last-mile delivery to pick-up points.
- Low Customer Loyalty and Retention: Despite initial surges in demand (often driven by subsidies), retaining customers in the long term proved challenging, as consumers were often price-sensitive and would switch platforms based on the best deals.
- Challenges in Standardization and Replication: Unlike Meituan’s standardized food delivery, community group buying had regional variations in supply chain structures and local preferences, making it hard to scale efficiently across the entire country.
While Meituan has not entirely abandoned the business, it has significantly scaled back operations in loss-making cities (like Beijing in 2022) and reorganized its unit to focus on achieving profitability rather than just market share. Meituan is now focusing on other growth areas like quick commerce (Meituan Instashopping), which leverages its existing merchant network and delivery infrastructure for immediate gratification, and which has shown better performance.
Duoduo Maicai’s (Pinduoduo) Success Factors:
- “Ultimate Cost-Effectiveness” and Low Prices: Pinduoduo’s core business model has always revolved around offering highly competitive, low prices through its group-buying approach. Duoduo Maicai extends this to groceries, attracting price-sensitive consumers, especially in lower-tier cities and rural areas.
- Strong Social Commerce Integration: Pinduoduo effectively leverages its social shopping model, encouraging users to invite friends and family to form groups to unlock deeper discounts. This organic, social sharing mechanism significantly reduces customer acquisition costs and builds a strong network effect. WeChat, as China’s dominant messaging app, has been a major driver of growth for Pinduoduo and its mini-app.
- Focus on Sinking Markets: Pinduoduo strategically targeted lower-tier cities and rural markets from the beginning, which were underserved by traditional e-commerce giants. This allowed Duoduo Maicai to establish a strong foothold where price sensitivity is higher and competition was initially less intense.
- Efficient Supply Chain and Logistics (for their model): Duoduo Maicai focuses on a “pre-sale + self-pickup” model. Orders are aggregated, delivered to community leaders or designated pick-up points the next day, and then collected by consumers. This model can be more cost-effective for last-mile delivery compared to individual home deliveries, especially when dealing with bulk orders for a community. They also focus on integrating with existing logistics networks rather than building everything from scratch.
- Effective Use of “Group Leaders”: Duoduo Maicai relies heavily on “group leaders” (often individuals within a community) who are responsible for disseminating offers, collecting orders, and managing pick-ups. These leaders leverage their social connections and trust within the community, acting as effective sales and distribution channels with a commission-based incentive.
- Adaptability and Lean Operations: While all platforms invested heavily, Pinduoduo’s overall philosophy of lean operations and a deep understanding of the price-sensitive consumer allowed Duoduo Maicai to potentially navigate the subsidy wars more sustainably than some competitors.
In essence, Meituan, with its more extensive on-demand delivery infrastructure, struggled to make community group buying profitable given its high operational costs and the intense price competition. Pinduoduo, on the other hand, built its entire platform around the group-buying concept and price sensitivity, allowing Duoduo Maicai to leverage these inherent strengths and capture a dominant position in the segment, especially in the “sinking markets.”